Essentials of Making Money

Every investor is well aware that the ultimate secret to earning money in real estate investing requires purchasing property at the correct price. To calculate this correct price, you must first determine what is known as the After Repair Value. This value represents the future value of your property, after the proper repairs have been completed. Coming up with this value requires some research on your part. Your best bet is to look around the neighborhood for similar looking property that has already been thoroughly repaired. Find a couple homes that are similar and then average out their prices.

The next value to take into consideration is the Maximum Allowable Offer. This entails first determining all of the expenses that will be affiliated with this purchase. This includes appraisal fees, mortgage loan costs, as well as obtaining insurance and perhaps the price of hiring a realtor or intermediary. Also take into consideration the cost of managing the property, such as taxes and bills. Also add the cost you expect to spend on repairs. Finally, sum all these values up and then add to that the amount of profit you would like to earn from the deal. Finally, take this accumulated value and subtract it from the After Repair Value. You have now arrived at a Maximum Allowable Offer.

This represents the highest amount of money you can pay and yet still warn the profit you want. The goal is to try to buy the property for less than the maximum value. Remember though that you won’t always have things go your way. Sometimes, you may have to settle with an offer that is above your MAO. However, always offer a counter-offer because you never know, the other person may just budge. Or perhaps they will counter your counter-offer with a counter-counter-offer that still is more appealing than the original value they had in mind.